Betz Laboratories Inc. v. Hines

APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA (D.C. Civil No. 79-03177)

Before Weis and Higginbotham, Circuit Judges, and McCUNE,*fn* District Judge.

Author: Weis

Opinion OF THE COURT

The fraud exception to the parol evidence rule is the matter at issue in this appeal. In isolated instances, the Pennsylvania courts have held that with the presence of appropriate language in the writing, only evidence of fraud in omitting or adding certain provisions will qualify as an "exception" to the rule. More frequent, however, are decisions allowing evidence to show fraud induced a party to enter into what is on its face a comprehensive, written agreement. After reviewing the contentions of the parties, we conclude that the latter line of cases governs and, accordingly, vacate a judgment for the defendant resting on the more restrictive reading of the fraud exception.

I.

The plaintiff, Betz Laboratories, Inc., purchased a building and subsequently brought suit against the seller to recover some $80,000 spent repairing the floor. The case was originally filed in the Court of Common Pleas of Bucks County, Pennsylvania, but was removed to the United States District Court for the Eastern District of Pennsylvania on the basis of diversity jurisdiction. After argument, the district court entered summary judgment for the defendants.

In late 1977, Betz approached the defendants (collectively referred to as "Cabot") about purchasing building 4A in the Bucks County Business Park. Betz made clear its need for a floor with a loading capacity of at least 750 pounds per square foot. In response, Cabot provided Betz with plans and specifications it had given to the builder, Aberthaw Construction Company, a subsidiary of Cabot. These specifications called for a five inch concrete slab on grade floor reinforced with wire mesh and, in addition, described the required soil compaction.

To satisfy Betz's inquiries, Cabot also hired a consulting engineer, Dr. A. A. Fungaroli, to determine the floor's loading capacity. His findings, based upon two test borings at extreme ends of the four acre floor, were sent to Betz. Fungaroli reported that the floor was "four (4) inches thick and reinforced with wire mesh," and concluded that it could support 1,000 pounds per square foot. He cautioned that the borings might not be fully representative of the "as built conditions," and included a comment that in time there might be cracking from support soil "adjustments and not subsurface soil support problems." One of Cabot's representatives stated that he was certain the floor would meet Betz's requirements because the soil was well compacted and the floor's average depth was at least five inches.

After purchasing the building, Betz discovered several problems with the floor: some portions of the concrete were only two and one-half inches thick; in places the reinforcing mesh was underneath instead of embedded in the concrete; and voids between the floor and the soil beneath ranged from 3/4 of an inch to over three feet. To strengthen the floor sufficiently to meet its needs, Betz incurred expenses of $82,100 pumping grouting underneath the concrete slab.

When the parties agreed to the sale of the property, a written contract was prepared by Betz's attorneys. The document made no reference to the existing condition of the floor or to Betz's specific floor strength requirements. Among the provisions was the following standardized clause: "This agreement contains the whole agreement between the Seller and Buyer and there are no other terms, obligations, covenants, representations, statements or conditions, oral or otherwise, of any kind whatsoever."

The plaintiff's complaint contains two counts the first asserts breach of contract, and the second alleges fraud in the inducement. In a bench opinion, the district court concluded that the representations as to floor strength were not collateral to the sale agreement and, therefore, came within the scope of the parol evidence rule. Count I was dismissed on that basis, and the plaintiff has not appealed from that order.

As to Count II, the court noted "confusion or doubt" in Pennsylvania law as to whether a party asserting an exception to the parol evidence rule must plead and establish fraud in the inducement or fraud in the execution.*fn1 Finding it unnecessary "to reconcile these two different, somewhat divergent, doctrines," the court entered judgment for the defendants "because the plaintiff failed to state a claim under either possible theory."

The district judge observed that both theories of fraud would require the plaintiff to establish (1) that the defendants misrepresented a material fact, and (2) that the plaintiff justifiably relied on the misrepresentation in entering into the contract. Ruling in the alternative, the court held that the plaintiff's claim was deficient in both respects. First, the Fungaroli report, and the defendants' interpretations of it, were said to be nonactionable statements of opinion, not assertions of fact or guarantees of the condition of the floor. Second, even if the defendants' statements could be characterized as misrepresentations of fact, the "plaintiff's fraud claim would still be deficient for failure to adequately establish justifiable reliance."

In arriving at this latter ruling, the judge reasoned that the "integration clause" effectively disclaimed the alleged misrepresentations, and the lack of any reference to the floor's load bearing capacity in the writing constituted a waiver of plaintiff's right to rely on an exception to the parol evidence rule. The court said "that if the parol evidence rule precludes an action for ...

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